Gold rush pushes kiwi nearer US75c

Speculation the greenback's days as the world's reserve currency may be numbered saw international investors yesterday favour the New Zealand dollar and gold, which hit an all-time high in US dollar terms.

The kiwi reached a 14-month closing high of US73.40c in Wellington yesterday from US73.24c at 8am, having touched US73.80c on Tuesday.

"We've broken into a new range, that was the significant thing last night," said Westpac markets strategist Imre Speizer.

"Breaking US73.10c was very important - it argues that another decent leg upwards to somewhere close to US75c is likely."

As usual, the kiwi's primary driver was a big slide in the US dollar.

The decline occurred as gold reached an all-time intra-day high of $1045 an ounce.

Speizer said gold's surge was fired by journalist Robert Fisk's article in British newspaper the Independent, which reported Arab states, with China, Russia, Japan and France, were in talks to move away from using the US dollar for oil trading.

Several countries denied the report, which comes hard on the heels of talk that the greenback's role as the world's reserve currency is fading.

"Obviously if it was true people were going to suddenly redenominate oil in things other than the US dollar and denominate part of them in gold, gold has to become a hell of a lot more valuable," said Speizer.

"It all makes sense. Whether it's all true or not I'm not sure because Japan came out afterwards and said 'we still like the US dollar' and they were quoted as one of the countries who were party to that discussion."

Sydney-based Deutsche Bank currency strategist John Horner downplayed the significance of Fisk's report.

"I wouldn't attribute too much to that. It did seem to get the US dollar weakening, which is its underlying trend at the moment. I think that tells us more about market sentiment more than the story itself."

The US dollar was clearly under pressure and Horner expected rhetoric from US Fed chairman Ben Bernanke today to underline expectations US interest rates would remain at extraordinarily low levels for an extended period, "and that should make it hard for the US dollar to appreciate".

Horner pointed out gold's gains were primarily a US dollar effect, noting the yellow metal was about 10 per cent off its late February peak against the euro, and 25 per cent off its New Zealand dollar peak around the same time.

Yesterday's US dollar high in gold prices surpasses the US$1033.90 peak struck in March 2008, just days after investment bank Bear Stearns collapsed.

However, in inflation adjusted terms, gold remains well short of its January 1980 high of US$850 an ounce, the equivalent of US$2200 today.

Meanwhile, the kiwi has been climbing strongly against a number of other major currencies, dragged along by the aussie, which rose on yesterday's surprise interest rate increase.

It set a new 25-year high against sterling of 46.32p and a 16-month high against the euro, above €0.50 on Tuesday night.

Horner said the New Zealand dollar was also strong on its own account, reverting to its historical status as one of the higher yielding currencies and finding support from better-than-expected local data, including this week's Quarterly Survey of Business Opinion, and signs of a housing market pick-up.

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